Recession will drive down office rents in the Euro-zone

Investor and development activity in CEE decreases

Hungary’s new value-based property tax

New law to cancel developments in Dubai

Luxury condos in Malaysia fall -30%

US mortgage applications fall

Recession will drive down office rents in the Euro-zone

The recession will drive down office rents in nearly all of the Euro-zone’s biggest economies in coming months, as distressed businesses relinquish space onto an already bloated lettings market, according to DTZ’s European Quarterly Report.

The report said: ‘Whilst the higher cost of debt has curtailed development in many markets, availability is rising as distressed tenants consolidate and downsize. This will lead to falling rents across the board.’

Demand for office space in the financial services sector in Frankfurt’s office market is leading to tougher lease negotiations between landlords and tenants. DTZ said it expected rents in Germany’s historic financial centre to fall by double-digits in 2009-10 with recovery in the market planned for 2012.

The impact of the financial crisis on the Madrid office market could be compounded by an increase in supply, with about 700,000sqm of development due to complete in 2010.

DTZ said: ‘Madrid will be witness to one of Europe’s largest rental corrections, with prime rents expected to decline by approximately -30-35% over 2009 and 2010.

Prime rents which had reached €500sqm in Q1 2008 will fall to around €350sqm before rents stabilise.’

Like London, Paris has suffered as a result of its dependence on the financial services sector, which accounted for a third of take-up in 2008. DTZ said the recent period of stability in prime rents is now ending, with rental falls of up to -16-18% seen by 2010.

Despite a challenging past 12 months for the Dutch economy, the outlook for Amsterdam’s office market was ‘reassuringly stable’, according to DTZ. Whilst about 180,000sqm of space is in the pipeline, it is unlikely that all of this will be developed in the current market climate, restraining headline rental falls to around 5% in 2009.

Investor and development activity in CEE decreases

Investor and developer activity in Central and Eastern Europe (CEE) decreased markedly during Q1 2009, according to Jones Lang LaSalle’s (JLL) latest CEE Capital Markets Outlook report.

JLL said that only the best assets in the best locations attracted attention from investors in Q1. The pricing of these assets was much lower than 18 months before. Rapidly decreasing values will create issues for borrowers and banks as additional equity will be needed in many cases to maintain loan-to-value ratios, according to the report.

Tomasz Trzósło, head of Capital Markets in the CEE at JLL, believes yields in Central Europe had increased significantly, and is now around 7-7.5% for prime office and retail assets and above 8% for distribution and logistics. This is about +1.5% more than the average sustainable yield level in Western Europe, including the UK, where current pricing for core non-distressed product is around 6%, according to Trzósło.

“We are of the opinion that pricing of real estate will be under further pressure in the next couple of months and we may see some further yield decompression until late autumn 2009. From autumn 2009 we expect that activity levels will improve and there will be more core investors looking for product in Central Europe, Poland and the Czech Republic,” said Trzósło.

Hungary’s new value-based property tax

Hungary’s new value-based property tax the Government plans to introduce as of 2010 will have three effective brackets, according to local news portal hirszerzo.hu.

According to the portal, there would be no tax on real estate worth less than HUF 2m. On the ones in the HUF 2-10m range the cabinet would levy a tax of 0.2%. The next bracket would be between HUF 10m and HUF 30bn with a 0.35% tax and the upper bracket would be for property worth more than HUF 30m with a tax of 0.5%.

Socialist Party (MSZP) MPs have discussed this proposal, but the general view is that Prime Minister Gordon Bajnai and Finance Minister Péter Oszkó will have a hard job if they want to hammer their motion through, as real estate tax would affect virtually everyone. The proposal, along with two more, may be put up for vote in Parliament in June.

New law to cancel developments in Dubai

Regulators in Dubai have the power to review all outstanding developments under a new law that gives them authority to cancel projects that do not start construction within six months of being approved by the Dubai Government.

Luxury condos in Malaysia fall -30%

Prices of luxury condos that have mushroomed around the Malaysian capital’s Petronas Twin Towers in recent years are crashing as the global financial crisis hits.

Cashed-up Malaysians and foreign investors from Asia and the Middle East fuelled a boom in plush inner-city apartments that saw some 28 high-end buildings thrown up in the city centre. But the economic slowdown has seen prices at some buildings slump by up to -30%, while one in five properties languishes unsold on the depressed market, according to analysts.

Tenancies are also down, and landlords are offering steep discounts on rentals, nervous that the traditional flood of new expatriates during the northern hemisphere summer may not materialise this year.

Rahim & Co estimates that sale prices for top Kuala Lumpur condos will slump between 15-20% this year. Prices at the glitzy 607-unit Marc building have plummeted by about -30%, according to analysts.

Despite the global crisis, none of the five new luxury condo projects still under construction in the Twin Towers area has been put on hold, and they are expected to be completed on schedule. Developers said they were optimistic of clearing the backlog when the economy bounces back, allowing buyers to take advantage of what by regional standards is now an even better bargain.

US mortgage applications fall

Mortgage applications in the US fell in the first week of May to the lowest level since March as homeowners slowed refinancing and purchases were little changed, according to the Mortgage Bankers Association (MBA).

The MBA’s index of applications to purchase a home or refinance a loan dropped -8.6% to 895.6 in the week ending 8 th May, from 979.7 in the week before. The group’s refinancing gauge fell -11% while the purchase index gained +0.5%.

Potential buyers may be waiting to see if property values fall further even as borrowing costs close to record lows make it easier to purchase homes. The unemployment rate rose in April to the highest level since 1983 and credit remains tight, indicating a housing market recovery will be slow.